The trouble is that free trade just feels wrong

It’s already clear what the first big dispute in the new European Parliament is going to be. Should the EU sign a free trade agreement with the United States and, if so, on what terms?

A number of MEPs distrust free trade in their bones. Almost all the communists, with their fascist cousins, will vote against a commercial deal with the US, regardless of the content. Several MEPs in other groups are also suspicious. Some want the deal to be conditional on environmental standards or on social regulation. Others drag in wholly unrelated issues, such as data sharing or foreign policy. Still others dislike the clauses that allow companies to override national governments when those governments are in breach of the agreement. Add the outright anti-capitalists to the qualified protectionists and you have an anti-TTIP majority. (TTIP, the Transatlantic Trade and Investment Partnership, is the official name.)

That’s not to say that there will be no deal. In Washington, as in Brussels, politicians hate admitting to failure, so something called TTIP will almost certainly be signed. The trouble is that, by the time it has been hacked at by protectionists on both sides of the Atlantic, it will be a maimed, anaemic thing. Indeed, the slicing had begun even before the talks. France, for example, made clear that films were not on the table, which may not sound that big a deal until you learn that Hollywood is the United States’ third most valuable export sector.

Both sides have made optimistic claims about how much TTIP will boost their GDP. And, without question, a wholly unrestricted North Atlantic commercial zone would bring enormous benefits. But that doesn’t seem likely to be the outcome. At best, trade liberalisation will be modest and limited; at worst, we could end up with a more regulated market, as vested interests take the most burdensome standards from the US and the EU and combine them.

It’s a missed opportunity from the United Kingdom’s point of view. Outside the EU, we’d have negotiated a properly open bilateral deal with the United States years ago. As members, we’re obliged to uphold a relatively protectionist EU commercial policy for the sake of French film-makers, Italian textile manufacturers, Bavarian smallholders and so on.

Still, we are where we are. A key task for Conservative MEPs over the next six months will be to try to convince others that free trade benefits all participants. For once, the word “convince” may be apt. Politicians rarely change their minds (as opposed to changing their policies, which they do frequently). Trade, unusually, is an example of an issue where intelligent people, shown the evidence, often do shift their view.

The reason is that free trade is literally counterintuitive. It seems to violate so many ideas that feel right. How can it be better to fly stuff half way around the world than to produce it locally? How can it be right to rely on one sector instead of encouraging the growth of a balanced economy? Doesn’t it make sense to shield infant industries from competition until they’re strong enough to go it alone? Shouldn’t we aim to be self-sufficient in basics, such as food?

All these ideas appeal to minds evolved on the savannahs of Pleistocene Africa. Our brains are designed to make short-cuts, to go with hunches. But the hunches that served well enough for hunter-gatherers programmed to hoard against famine are often irrational. (I try to address the food security issue, for example, in this blog).

Just as we can understand that an optical illusion isn’t what it seems, so we see through false intuitions (of which, indeed, optical illusions are a sub-category). A good example is the question of comparative advantage, perhaps the single most counter-intuitive notion in the whole of economics. If Country A is more efficient than Country B in every respect, we can see why Country A stands to gain from free commerce between the two. But surely, we assume, Country A’s gain will be Country B’s loss? Country B’s industries will be overwhelmed by cheaper competition, its workers thrown onto the streets. Won’t they?

Well, try watching the video above. The logic is ineluctable. Free trade makes all its participants wealthier. Some individual firms may lose, but the participating countries as a whole are, always and everywhere, better off. Indeed, the more efficient your trading partner becomes, the wealthier you get – even if your own productivity doesn't improve one jot.

You might contend, of course, that MEPs are too stupid to grasp the concept of comparative advantage. After all, if they understood economics, the euro crisis wouldn’t have happened. Well, maybe. But we don’t need to convince all of them; just enough to make the deal worthwhile. I’d say it’s worth a go, wouldn’t you?